I bought a new car several years ago in Utah, where I live. The purchase price was $25,000 and I financed $20,000 of that. I lost my job several months ago and stopped making my large car payments. The car loan lender repossessed my car; at the time my unpaid balance was $10,000. I’ve heard I might still owe money? Is this true, even though the lender took my car?
Yes, it’s true. You will be liable to the car loan lender for what’s called a “deficiency.”
After car repossession in Utah, the former car owner will owe money to the lender if the amount the car sold for at auction or private sale does not cover the unpaid loan balance plus the lender’s costs of repossession and sale. This amount is called the deficiency. There is an exception to this law – if the consumer paid $3,000 or less for the car, the lender is barred from collecting a deficiency. But, given the cost of cars these days, this exception rarely applies.
If you fall behind in your car loan payments in Utah, your car lender can arrange to have your car repossessed. When this happens, the car repossession company simply takes your car -- it doesn’t need your permission. (Learn how car repossession work.)
In most cases, the car lender will sell your car either at auction of through a private sale (often to a used car dealer). If the sale price is not enough to cover the remaining balance on your car loan and the lender’s repossession and auction costs, you will owe the difference – called the deficiency. (Learn more about deficiency balances after car repossession.)
What if the sale proceeds are more than the loan balance? If, on the other hand, the sale proceeds covered both the unpaid loan balance and the lender’s costs, the consumer wouldn’t owe a deficiency. In fact, the lender would have to return any surplus money to the consumer.
In Utah, the lender is prohibited from collecting a deficiency if you paid $3,000 or less for the car. (Utah Code Ann. § 70C-7-101.)
However, if the lender failed to follow Utah rules when it repossessed the car, conducted the sale, or calculated the deficiency balance, you might be able to challenge it’s right to the deficiency. (Learn more in Can a Car Lender Collect a Deficiency After Repo?)